Nordnet AB (publ) (SAVE) Earnings Call Transcript

Okay, then. Hello, everybody. Welcome to Nordnet and the presentation of our financial report for the second quarter of 2021. My name is Johan Tidestad, and I'm the Chief Communications Officer at Nordnet. And with us here is as CEO, Lars-Ake Norling; and our CFO, Lennart Krän, who will make a presentation of our business and financial numbers for Q2. That will take around 20 minutes or so. And after that, we have a Q&A session. And during the presentation itself, all participants are muted, and we'll let Lars and Kran to run through their slides first. And when we come to the Q&A session, we have 2 alternatives to ask questions. You click on the button at the bottom of the screen that says raise hand, and I will then enable you to talk, and you can ask your question verbally. You can also send in your question in writing, if you want to use that alternative, you just use the Q&A function at the bottom of the screen. You write the question, and I will read it out to Lars and Krän. We'll come back to that later when I start the Q&A session. And of course, as always, the presentation itself will be available on our corporate website together with a recording of this session. Okay, then let's go, Lars-Ake, please go ahead.

Thank you. So you can go pick to next, Sunny. Starting with the key highlights. We see a continued very high customer growth, and we increased the customer base with 31% in 1 year, and that's more than 400,000 new customers in 1 year. Savings capital exceeds now SEK 700 billion and reaches a new record, both from underlying market cost, but also from a very high net savings during the first half of the year. You also see a very stable growth in the loan business with the lending volume being an all-time high, SEK 23 billion, and see very good growth in both mortgage and the margin lending products. We also see very strong development in the fund business, but the fund capital increased to 65% in 1 year. We also launched a new tech index fund and ESG enabled our international index funds. And overall, we have the next best financial result in Nordnet's history with a profit before tax of SEK 536 million with the growth of revenues around 28% and still a very scalable model. Operating expenses for 2021 is estimated to be around SEK 40 million higher than previously communicated level of around SEK 1.1 billion. And this is due to the very strong customer growth of 38% growth in 1 year compared to the guidance of 10% to 15% growth and also partly higher marketing cost. We did the marketing to capture the very strong growth trend that we currently see. And we will come back also revised medium-term financial targets latest by the quarter 4 presentation. We can go to next. Just some financial highlights. As I said, customer base increased 38%. We currently have around 1.5 million customers in Nordnet across the Nordic countries. Service capital increase is 66%, both, of course, with the market growing, but also very high net savings. Number of trades, up 13% versus last year, where we see a drop in trading activity per customer, but that's compensated by the -- that we have so many more customers this year compared to last year. And revenues up 28% from the customer growth and also high net savings and savings capital growth. Operating expenses is up from mainly the big customer growth that puts cost pressure in customer service and back office functions. But also that quarter 2 2020 was also fairly low comparable. But overall, still very strong operating leverage, and we increased the profit before tax with 41% to SEK 536 million quarter 2 2021. Go to next. And we continue the long-term growth trends on customers and savings capital. And since 2019, we have a growth rate in the customer base of 30% per year and savings capital of more than 40% per year. And as we talked about before, the reasons for this is, 1 is that we modernized our platform and really improved the customer experience, and that's really appreciated and liked by the customers. But also we see very strong digitization trend in the Nordics and a high interest savings and investments in general. And then we also reached an inflection point when it comes to growth in all countries also outside of Sweden. We can go to next. And here is the growth in customers by month and also net savings per month versus last year. And as you see the development, both in customers and net savings, has been very strong. We have grown the customer base with 250,000 customers just in the first half of this year, and that's 100,000 more customers compared to same period last year, which was a very good period. And also net savings is almost SEK 50 billion in the first half of the year, also around SEK 10 billion stronger than last year and on a very good level. We can go to next. And we are already a leading digital platform, investments in Nordics, and we have a very well diversified revenue footprint with 40% traffic revenues coming from Sweden, 20% each in Norway and Finland, around 23% in Denmark. But as we see also in the middle graph and the growth to the right is that our growth -- the customer growth is highest in the countries where we have the highest margins. So that overall would support the revenue margin for the company over time. And the reason for the higher revenue margin outside of Sweden, we also discussed before, it's mainly due to cross-border trading. It's a high share of cross-border trading in those countries, which gives us higher commission revenues and also we earn our FX spreads. We can go to next. We see also strong development in all countries when it comes to customer growth and savings capital growth. And in Sweden, we see increasing growth rates, we have doubled the amount of new customers first half of 2021 versus same period last year. We also see a very strong development in Norway, Denmark and Finland, where Norway growing the customer base is 60% in 1 year. Denmark 84% and Finland, 32%. Go to next. Also good development in all revenue streams. The red part here is net interest income, the dark blue part is mainly fund income and the light blue is brokerage. And we see that we have the last years, very good growth in net interest income and the fund business around 25% yearly growth rate and even higher growth rate than in the brokerage business. And if you look down to the right, you also see that the margin development, where we have a stable margin in net interest income and in funds. And we see a slight drop now in the brokerage margin, and that's due to less trading activity per customer in quarter 2 compared to quarter 1 and last year. I will comment that further on the coming slides. We go to next. So if you look at trading specifically, we see that we still have a very high share of customers trading around 40% of the customer base is trading. And in total, we have 50% more customers trading in quarter 2 this year compared to quarter 2 last year, and that you see in the graph to the left. But what we also see is that the trades per trading customer up to the right there is going down and it's lower than quarter 1 and is also slightly lower than quarter 2 last year. The reasons for this is both at seasonality, where we have very clear V-shape and seasonality when it comes to trading activity. And also that we have seen lower volatility in the market in quarter 2 versus quarter 1. Down to the right, you see that the cross-border trades, the share of cross-border trade is still high, a little bit down from quarter 1, but still on a high level. And that's mainly also now supported by the country mix and the growing in the countries where we grow so much in the countries where we have also a high share of cross-border trading. If you go to next. And a little bit about trading seasonality, and that shows you clear V-shape in the graph to the left, you see that we have the higher trading activity in the beginning of the year and the low point in June, July, and then that starts picking up again from August, September. And the red the graph here is the development of 2020. There was, of course, a little bit special with the corona crisis in March. The light blue is the trading per customer per day in 2021. And the dark blue line is the average trading per customer today 15 to 19 in. And if you see the light blue line were lower trades per customer trading days versus 2020, which was an exceptional year, but higher than the average 15 to 19. And also in the graph to the right, you see a full year trades per month. And here, you also see the effect of number of trading days and the growing customer base over time, but also a clear V-shape. Go to next. Again, overall, strong performance on customer satisfaction that we measure through NPS. We have a clear #1 position in Norway, Denmark, Finland and strong #2 position in Sweden. So overall, a leading position on Net Promoter Score and customer satisfaction in the Nordics that's also enabled us to either increase or have stable market share versus last year when it comes to trading and the local exchanges. Go to next. Also a short comment on costs since we also reguided on the cost. And if you look at the graph to the right, you see the cost development over the last years in absolute terms. And here you can see that we have had a stable cost level now from 3.5 years. And that's, of course, improved the cost margin quite a bit from 38 bps down to 20 bps currently. And the cost initiatives we're working with is to the left here, starting that we have a very stringent cost covenants that we follow costs very closely and also on a monthly basis, identify new cost initiatives. And our main savings area when it comes to cost is a process simplification and automation. And here, we have done a lot, both smaller automations and simplifications and larger ones like fully automized journey for mortgage and also see automated part of the credit application processes. But we still have a lot to do. We still have many processes. So that was partly driving the cost in back office and customer service due to the high customer inflow. We also shift our consultants and [ we can to ] employees, especially in tech. And then, of course, we work very extensively with third-party spend and have a good procurement organization and see that we get the right cost in our contracts going forward. But as we said in the beginning, we have reguided on the cost for 2021 versus what was previously stated. So SEK 40 million higher. Due to that, we have 38% annual growth in customers compared to the financial target of 10% to 15%, but put then a cost pressure in customer service and back office and partly also that we will have a higher cost for digital marketing to capture the strong customer growth trend currently see. Go to next. And we continue to build on our platform to build the best platform for savings and investments. And this is just a few highlights, what we done at quarter 2. So we launched the Finnish site in Swedish. We will have in Finland, both Swedish and Finnish language, which is appreciated by the Swedish speaking customers in Finland. We also an ESG enabled all our international index funds. So they are now Article 8 compliance. We've launched tech index fund that's been very popular with the 40 bps fee, which is the lowest in the market in Nordics. And we also launched a number of teacher supports in our app and web like buy and sell dots in the app that you can log in via a QR code on the web, et cetera, quite a lot of new features. So I think I'll end there and leave it to you, Lennart, to talk a little bit more about the financial performance.

Thank you so much, Lars-Ake, and good morning, everyone. We can flip to the next slide, Sunny. I told you before, but the 2 main drivers for Nordnet is customers, number of customers and savings capital, and implicitly also the net savings, of course. And this is summarized on how the development of those has been during the years throughout '19 to now. And as you can see in '19, we had a growth rate of customers about 20%, 25%. And then it increased in '20 to 25% to 30%. And now we're up to almost 35%, 40% growth on customers. And that is, of course, very pleased to see. Also, the savings capital has grown quite a lot, but not just that. It also that the savings capital per customer has grown, with this tremendous growth rate of our number of customers, I would have expected it to least be the same or might even lower but it actually has increased from 412,000 to 450,000. So that is also good. It's also good to see that this is a spread over debt fund and equity side. So both those 2 have increased quite significantly. We can go to the next slide. This also comes out in the revenue streams. I mean we are now quite diversified in all those 4 countries, having 20%, 25% from -- in revenue from the different countries, except for Sweden a little bit more. But also the revenue streams, all of them has increased since '19. So it's not just 1 as transactions or as funds or something like that, we see within all streams. But what we can see here is also that the level is from '19, around SEK 400 million; in '20, around SEK 600 million. And now we have increased to around SEK 800 million with the giant peak here in first quarter, of course. But as you can see here, it is also net interest income is the fund and this transaction. What is specific for the Q2 here is actually other income, and that is generated by high IPO activity revenues. And I would say that, yes, there's been a high activity in general, but also that we have specifically addressed that market and are very -- have a very good market share for the retail part of this 1 in all 4 countries. You can go to next. While this increase of customers and the revenue increase as well, we have been able, as Lars-Ake told you before, kept the cost quite stable. And here, you can see how consistent it is on a quarterly level. Yes, we had lows in '20, but we are about the same level in '19 as well now in '21. That was a low in '20. We hadn't had this major increase of customer inflow. We also did not be able to employ that much developers, and that has -- we increased it a bit, which is a cost. And then we also now in Q2 actually do some marketing efforts to go forward. And that is also why we indicate that the cost will be higher because we are intended to maintain that level. You can go to the next. This actually leads to the operating leverage. I mean, with a result for the 6 first months 2020 of SEK 750 million [ PBT ] and in 6 months 2021, SEK 1.4 million almost. That is the operating leverage. I mean, yes, we have a small increase in cost but it's really driven by the revenue side. So I'm very pleased to see this one. We can go further on. We've been -- I've been talking about the revenues and the customary inflow, but also 1 thing that has grown significantly is the lending portfolio. We have grown it from last year SEK 16 billion to now SEK 23 billion. And as we earlier pointed out, the unsecured part is on a stable level, but relatively, it decreases still on SEK 4 billion. But the mortgage level -- mortgage lending is increasing as the margin lending. Both those are generating good revenue at very, very low risk. Looking at the credit losses, I would say they are -- they were in Q4 -- Q1, very, very low and are the underlying is the same here, very low. We have increased some reserves, and that is why we end up at the same level as we had last year same quarter, but still on a low level. It is mainly in the unsecured portfolio, of course. But in respect of IFRS 9 and the growth of those other portfolios, the reserves also increases in those parts as well as with the liquidity portfolio, but it's mainly driven by IFRS 9. So the underlying credit losses are as low as before or even maybe even a little lower than that. We can continue. In respect of the capital situation, that is maintained on a good level. Capital adequacy is very high buffers, and we're not utilizing the capital we have in a risk perspective, but that is due to that we have to have quite a lot of capital due to the leverage ratio. Now the leverage ratio is in effect, and that is the minimum requirement of 3.0%. We are still awaiting the buffer level that will be required to hold, and we expect that decision to come in late September to us, but that is specific for each bank. So we can't say anything, and I don't want to speculate in where that will end up in. You can turn next one. And thereby, I hand over to you again, Lars-Ake. You are on mute, I think.

A little bit short on the financial performance versus medium-term targets. Customer satisfaction, we talked about strong customer growth, also very strong compared to the guidance, 38% currently versus guidance of 10% to 15%. But like Lennart talked about also what we're especially happy with is that in spite of the strong customer growth, we have a very high income per customer since new customers normally come in with lower capital. Also still loss amounts, a good income margin and operating expenses we talked about and the dividend policy of say 70% of the net profit per year. But like I said in the beginning also, we will come back to the revision of the medium-term targets, latest by the quarter 4 report. Go to next. And again, just a recap of our key focus areas, starting with the customer side. Here, the most important is to continue to build on our best platform for savings and investments. That's what we do every day. Of course, to achieve then that we have the best customer satisfaction and overall low churn. We also know to have happy customers who need happy employees. So we work a lot with our employees, and we target to have an upward trend on eNPS. And also that we are able in a good way to attract and retain top talent. And then as a digital part of saving investments, governance is key and we are in a trust business, and we need to earn that trust every day. And that means that we either full control of our risks, both compliance risks and other risks and overall be a trusted and liked brand. And when it comes to the profitable growth, it's really to capture the Nordic growth potential. We currently have a market share of 5% in the Nordics with ample room for growth for many years. And of course, to do that, still we continued good scalability in the business. So with that, we end this presentation and we move to Q&A.

[Operator Instructions] All right. The first question comes from Patrik Brattelius.

Can you hear me?

Yes.

We can. Yes.

Great. Yes. Patrik Brattelius from ABG. A couple of questions from my part. If we just start by the -- on the costs. So just to be crystal clear here, if we look further out in 2022 and 2023. Is this the new cost base that we should think about? Or do you expect the cost drivers of reducing third-party spend and simplification automation that, that will reduce the cost base back to the 2019 level? Or is -- or should we even expect that the cost base can increase in 2022 and 2023 with SEK 40 million annually. How should we think?

Yes. Should we start with that? Did you have more questions or should we start with that one?

I have more questions, but we can start with that one.

Yes. As you said, we will do a full reguidance of all medium-term targets and no later than quarter 4 reporting. And the cost in '22 is also a little bit function of -- is a function of customer growth in the coming years versus how fast we can automate all the processes.

Okay.

There's noise in the background. It's hard to -- I don't know if this is with you, Patrik.

Sorry. But...

So in any case, we see, I mean, limited cost increase in the years to come, but it will be functional bit about the growth and how fast we can automate. And how fast we can automate is also a little bit dependent on tech resources.

Okay. So if the growth rate were to be higher than your target of growing annually 10% to 15%, that could lead to a cost increase?

Yes. So I mean the cost we know is a function a little bit about the growth and also how fast we can automate. And that's, again, dependent on any tech resources we have. There might be that we want to scale up slightly on the tech resources to manage automation faster. But we come back with the guidance fully latest by quarter 4.

Okay. And then as you showed in this presentation, you show a clear trading seasonality pattern. But in that graph, you show that the trading generally picks up during the later part of the year. So given that backdrop, do you expect you will be able to grow transaction-related income in the second half from the base we now see in Q2?

That the graph shows clearly, I mean, the low point you have in June, July, and then it picks up again from August, September and onwards. Of course, the first week at least in August is one we can. So that's a normal pattern that we've seen for many years. But again, of course, it's dependent also on the overall volatility in the market, as we know, but we have fairly long-term trends, as you see on this.

Yes. Okay. Got it. And my last question then, what surprised positively on the income side, I guess, my numbers at least, was the other income driven by the IPO revenues, I guess. How does that look in the second half? How does the pipe look for IPO revenues? Is it going down?

There is a strong -- still a fairly strong pipeline for sure. And like Lennart said, also, we have moved forward our positions when it comes to retail distribution for IPOs and we are a selected partner for many of those, both in Sweden and also definitely in the other countries.

The next person up is [ Mats Lilydoll. ] Hello, [ Mats. Mats ], I think you can speak now, [ Mats ], if you want to. [ Mats ]?

He is muted.

He's on the line with 2 different. All right. We'll see if we can get [ Mats ] back later. [ Armin ], are you with us?

Can you hear me now?

Yes, [ Mats ]. Yes.

Give me 1 second. That's interesting. It ended up with my colleague. But you can hear me now.

Yes, [ Mats ]. Yes, please.

Okay. I'm just interested in a little bit in the client mix and profit per trade depending on the countries here, I see that operating profit per trade goes a little bit in different directions, in different countries. What is the main reason for that? It looks stronger in Sweden actually than it does in some of the other countries. And then also, if you have the client mix of the income generation. If you look at the second quarter here, is it a lot on new clients, say, maybe more in savings capital? Or is it back to more active traders that generate the higher share of income, if that is something you can share with us? And then thirdly, perhaps on FX income is, how much higher is that something you could share with us? Is it for Nordic clients' trading stocks in the U.S. rather than Norwegians and Dane's trading stocks in the Stockholm exchange. Is that something you have data for?

Yes. I think client mix, overall, I think, a little bit more trading from heavy traders versus retail. That is if you look at the total mix. That, of course, impacted margin a little bit, I would say, in Sweden and Norway specifically. And in the other countries, I think it's just a function also that we have a little bit less cross-border trading in Denmark and Finland compared to quarter 1, and of course, that impacts the margin. When it comes to FX Nordic versus U.S., I don't have the full breakdown. But I would say it's I don't think it's major differences, perhaps U.S. is a little bit down in quarter 2 versus quarter 1, while Nordic then mix wise is a little bit tough, but I don't have the exact numbers for that.

Okay. So operating profit per trade, I did see that it's up in Sweden, I would say, unchanged Norway, but down Denmark, Finland. That is due to that they trade less cross-border.

Yes, yes, yes. Still high levels but less from quarter 1.

Yes. Yes, it's much higher than 2020, but definitely down Q-on-Q, so.

I think we have [ Armin Hervich ] now. Hello, [ Armin ].

Yes, can you hear me?

Yes, we can.

That's great. So the first question would be on the mid-term targets. Should we expect that to mainly be an update on the cost side? Or is there any reason we expect that you will need to alter your long-term customer focus from the current base, the 10% to 15% from the current base going forward.